Post survey - questions re: closing the deal

I promised in my Welcome Mat intro thread to give results of my survey which happened this last Monday. This is the summary I wrote before providing the blow by blow:

I’m not writing for suspense, so I’ll summarize the ending: The day of the survey taken in total was one of the best days of my life. It was about as perfect as it could be. An incredible amount of effort to make the day a joyful experience was expended by the owners, myself, the surveyors, a friend I’d invited along for the ride, and the yard. All of that effort resulted in a day that was not only successful, but fun and exciting. And Mother Nature did her part, delivering sun, warmth, a little breeze when one was needed and calm when it wasn't. It was just a darned good time. May all your surveys be similar.

That was written while I was still glowing from the nearly perfect day, thinking that I'd just returned from what might have been my first cruise on the boat that would soon be mine. No, the boat's condition was not judged to be perfect, but I accepted that going in.

Now that I have the surveyor's report and evaluation in hand, I have questions about the unknown territory ahead. Realize that I can't give specifics, but I think I can talk in generalities to explain the situation and get some useful guidance. Here goes:

Assume the boat will be financed with an 80% loan. I've read that the lender includes an estimate of the value of the boat in their decision whether to finance and to determine how much they're willing to risk. Lenders either do their own estimate of the boat's value, or they base it on the pre-purchase survey. Maybe they consider both when they have that luxury. From there, does anyone know if there's a general rule for how much of the estimated value the lender will loan? For example imagine a hopeful buyer has agreed to buy a boat for $200K and is applying to finance 80% of that, or $160K. The pre-purchase survey evaluates the boat's value to be $160K. Will the lender risk the entire $160K the buyer hopes to get or limit the loan to some fraction of the estimated value? If a fraction, does anyone know what that fraction typically is?

That question is less significant (to me) but it sets up the next question about insuring the boat:

What does the insurance company use as their insurance limit for a total loss? I've heard they typically insure to some percentage of the boat's value, leaving the owner to come up with the remaining portion as the deductible in the case of a total loss. In the case described above, is the insured value a fraction of what the owner paid for the boat, $200K, what the surveyor determined the boat's value to be, $160K, or some other number? What's the fraction?

Thanks for any and all inputs. More details to come when I can share them.

Why would you buy a $160,000.00 Boat for $200,000.00? The bank will use its own underwriting guidelines, but most would use the lowest amount and loan 80% of that amount $128,000.00

I probably wasn't clear. The question is a hypothetical situation using made up numbers to understand how the other parties involved play this game. Yes, it sounds stupid and the questions likely qualify as stupid questions (yes, there are stupid questions), but the answers will help me.

Thanks.

Greg, not a stupid question at all. You started with "Assume..".
Feel free to ask anything you need. As you raise financing and insurance, I assume the survey itself is positive. Don`t let the "blue sky" on the day affect how you read it.

Greetings,
Mr. GB. As I understand it the insurance company will accept a survey, from a recognized surveyor (SAMS/NAMS) for an agreed upon value provided ALL the items noted as "defects" in the survey have been repaired. Can't help you with the financing question. I have trouble managing my $6.32 (adjusted for inflation) weekly allowance...

Greg, I didn't think your hypothetical question was a "dumb question". Surveyors Work with what they know. The boat in question could be worth more than the value in the report.. But why?.. if the buyer is still willing to pay the original agreed to price, I would assume you will have a hard time convincing the lender to loan more than their maximum loan to value guideline and will need to invest more of your own money.

Spelling and grammar mistakes were approved by IPad

Much in the spirit of CapeCodder, in by far the majority of cases, if your offer was not 20% under the Survey prior to repairs, you most likely are paying too much. It's a boat.

Very sorry if that clouds your perfect day.

Is the lower appraisal price due to poorer condition or is it due to the market value of the boat being lower? If it's condition then negotiate a lower price after the survey. If it's market value then your offer may have been too high. In either case you can always re-negotiate the price based on the lower appraisal value. The seller is going to have the same problem with the next buyer, so he/she should be motivated to deal.

I don't know for sure what the lender will do - but I'd expect it would only be 80% of the appraised value.

In my experience the insurer covered the full purchase value of the vessel - which was the same as the appraisal value for my boat. There was a deductible (2%) of course - but that's standard practice. I'm not sure what they'd cover if you pay more than the appraisal.

Richard

OK, first for the financing.

If your lender has a 80% loan to value for that age boat then the 80% is based on the survey value.

If you agreed to buy a boat for 200 and the survey comes in less there is an issue. The reason is that the surveyor generally asks the price you're paying for the boat, or the dollar number you're looking for.

If the boat has no major issues then the surveyor will generally try to meet your purchase price if its within reason of course. The simple thought that a boat is worth what a ready willing and able buyer will pay, and here you are ready to pay the agreed to price. This is not absolute, but surveyors are humans and again within reason they are generally acomodating.

Thats why a survey value below your agreed price is so concerning. Either you agreed on way too much, or the survey revealed significant value affecting issues.

Remember yuou pay the surveyor for his expert advice. Listen to it.

Regarding the insurance value; my insurer was somewhat open to the $ value the boat was insured for. I had the option of insuring for the purchase price, the surveyor's valuation or could insure for a different value if I gave supporting reasons to do so.

Obviously the cost of insurance went up with a higher value, but they were very flexible.
I'm not sure if all marine insurers operate this way. I'm thinking they may be somewhat less open to negotiation in the US.

I would ask the surveyor for the reasoning behind his price verses what you offered. If it is based on what other boats of same kind sold for, which it usually is, then you would need to ask what the condition of those boats were. Was it in as good of condition as the one you are looking at? Usually they can't answer that and then you can request that they adjust their survey price because of the good condition of the one that you are looking at. This is all assuming the one you are looking at is in very good condition....

Many insurers are flexible on the insured value. If you do improvements to overcome deficiencies in the survey, clearly the boat can have an increased value. My policy has an agreed upon value. After my refit, I will likely raise the insured valve about 15% which the insurance company was fine with. I explained to them what I was doing and the amount I planned to increase the policy by. No problem; no additional survey required. They asked if I wanted a higher value from the start. Doubt they would insure it for twice the survey value, can't imagine 20% above being a problem.

Ted

I am familiar with BoatUS insurance and know they use a "declared value" which the owner determines. It can be purchase price, higher or lower (I don't know how far a range +/- book value they will accept?). The premium is based on the declared value and the deductible amt or % is a decision the owner makes - obviously higher deductibles reduce the premium.
On previous boats I "Declared" purchase price and lowered it over time to reduce the premiums.
FYI - BoatUS Insurance also offers declining deductibles - each year w/o a claim the deductible is reduced (10% / yr if I recall correctly) - a nice way to save a few$ - raise your deductible level as they reduce it and it lowers the premium while not exposing you to any additional losses.

GregBrannon said:

Now that I have the surveyor's report and evaluation in hand, I have questions about the unknown territory ahead. Realize that I can't give specifics, but I think I can talk in generalities to explain the situation and get some useful guidance. Here goes:

Assume the boat will be financed with an 80% loan. I've read that the lender includes an estimate of the value of the boat in their decision whether to finance and to determine how much they're willing to risk. Lenders either do their own estimate of the boat's value, or they base it on the pre-purchase survey. Maybe they consider both when they have that luxury. From there, does anyone know if there's a general rule for how much of the estimated value the lender will loan? For example imagine a hopeful buyer has agreed to buy a boat for $200K and is applying to finance 80% of that, or $160K. The pre-purchase survey evaluates the boat's value to be $160K. Will the lender risk the entire $160K the buyer hopes to get or limit the loan to some fraction of the estimated value? If a fraction, does anyone know what that fraction typically is?

That question is less significant (to me) but it sets up the next question about insuring the boat:

What does the insurance company use as their insurance limit for a total loss? I've heard they typically insure to some percentage of the boat's value, leaving the owner to come up with the remaining portion as the deductible in the case of a total loss. In the case described above, is the insured value a fraction of what the owner paid for the boat, $200K, what the surveyor determined the boat's value to be, $160K, or some other number? What's the fraction?

Thanks for any and all inputs. More details to come when I can share them.

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I can speculate regarding the financing aspect, and provide concrete information re insuring the vessel.

Financing:
Assuming the lender is a marine specific lender (has experience in financing boats, and not just lending money), your lender will go 80% of the survey valuation. if there is a delta between the agreed-upon value and the amount being borrowed, you will be responsible for that amount. Each lender has specific criteria, so you'll have to refer to them for all the facts.

Insurance:

When we write a policy, we can write it for the sale price +++ (plus taxes, license/fees, registration) as well as any hard additions (electronics, etc) OR the survey valuation. Underwriting is generally good with either, as long as the survey is NAMS or SAMS. A major question will be why the amount paid for the vessel is greater than either the survey amount of the provable purchase price + adds as outlined above.

The situation you mention where the vessel is "insured to some percentage of the boat's value, leaving the owner to come up with the remaining portion as the deductible in the case of a total loss" is what is known as an Actual Cash Value policy. The value of the vessel is determined at time of loss. This is basically the same type of policy as is on your car.

An Agreed Value policy is a policy where the value of the vessel is determined at time of policy inception. In the case of total loss, the insured receives a check for the full agreed upon amount as per the policy dec page- deductible and depreciation is not factored in.

In your example, the policy would be the amount the vessel is insured for.

GregBrannon said:

The pre-purchase survey evaluates the boat's value to be $160K.

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If the survey came back at $160, then the boat is only worth $160k and banks will only lend on 80% of that. If the survey came back at $160 and you didnt influence the surveyor in any way, you need to go to the owner and have them lower the price to $160.
Is there something about the boat that the surveyor does not know or you are not telling us that makes you still want to pay $200k for this boat?

Thanks everyone for your time and answers. You've helped more than you know. I see from your responses that I made some rookie mistakes, but I'm not sure that the end result will be any the less for them. In fact, it may be more to my liking, but I'll never know.

I hope to finalize the deal this weekend. Maybe then or shortly after I'll be able to fill in some of the details. Pictures at least!

Be well!

GregBrannon said:

Thanks everyone for your time and answers. You've helped more than you know. I see from your responses that I made some rookie mistakes, but I'm not sure that the end result will be any the less for them. In fact, it may be more to my liking, but I'll never know.

I hope to finalize the deal this weekend. Maybe then or shortly after I'll be able to fill in some of the details. Pictures at least!

Be well!

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Is your broker guiding you in this transaction?

Very good advice.

My bank, AKUSA, used the lower of the appraised value or actual purchase price.

Also, if the above answers surprise you, you may not be asking the right question.

"Much in the spirit of CapeCodder, in by far the majority of cases, if your offer was not 20% under the Survey prior to repairs, you most likely are paying too much. It's a boat"

This opinion is how boats get listed at STUPID numbers.

A boat has a LOCAL value , in most value surveys that is reflected.

In FL wood is dead, in Maine or Canada its fine.

Same with steel, local attitudes will distort value..

Steel is loved by Euros , in US , not so much.

As others have noted you should not offer more for a boat than it can survey for. The surveyor takes into account the actual sale prices of similar boats. If you overpaid by 20% there should be a compelling reason.

Pau Hana explains the insurance side well. I will use my case as an example. I purchased my boat for 25% below the survey price in a distress sale. I insured the boat for the survey price. If my boat sinks I will want to replace it quickly and I will pay current market prices.

My insurer will let me increase the insured amount in two cases. One, I can add value to the boat. We added diesel heat for about 12K and rear canvas for 5K. Two, if I feel market conditions have changed I can re survey the boat. Many surveyors offer a reduced-cost market survey. They give a cursory review of the boat's condition and use current sales for the new valuation.

Did you actually offer 20% more than current market for the boat? If so, why?

I think that condition still trumps all. Average sales prices are dragged down by barely floating hulks and don't always reflect what people will pay for an especially well-maintained boat.

If the object is just to get a good boat at a good price or a steal--and you're open to pretty much any boat that's close to your needs--then keeping your offer at or below market price makes sense to me.

But if you've settled on specific models that rarely come on the market in superb condition--and are quickly snapped up when they do--the comps that drive surveyors and bankers may not reflect what a willing buyer will pay.

As to the financing, you said those were not the real numbers and so hard to answer. However, depends on who is financing. If a "boat lender" they're going to use the lowest value they find, either survey, purchase price, or their guides. If a regular bank you deal with they may be putting more on you than the boat and so might go a bit higher. Still no lending institution wants an upside down loan.

As to insured value. Think of it as a "not more than" value. They're far more liberal in insuring for purchase price or even a higher declared value. Why? Because if you over value for insurance purposes that just means you pay more but you won't get more in the event of a claim. The claim will be based on market value at the time of the claim.

BandB said:

As to insured value. Think of it as a "not more than" value.... They're far more liberal in insuring for purchase price or even a higher declared value. Why? Because if you over value for insurance purposes that just means you pay more butyou won't get more in the event of a claim. The claim will be based on market value at the time of the claim.

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BandB,
I don't think that is the case w/ BoatUS Insurance. Their policy states...
"Total or Constructive Total Loss
We will pay you the agreed hull value as defined by the policy if the boat is lost absolutely, or if the reasonable cost of repair exceeds the agreed value. We reserve the right to declare the boat a constructive total loss and pay you the agreed value if in our judgment costs of salvage and/or repair exceed such value"

I agree in the case of partial loss they take into account depreciation of equipment, etc but not in the case of total loss... at least that's how I interpret the policy wording. Fortunately I have never had to file even a partial claim...
Am I missing something?

Bacchus said:

BandB,
I don't think that is the case w/ BoatUS Insurance.

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I've never dealt with them but still would imagine somewhere there are terms that protect them against inflated values. I haven't seen one of their complete policies, however, and so I could be completely wrong.